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Pioneer Southwest Energy Partners L.P. (PSE)

RBC Capital Markets Conference Call

November 17, 2011 9:30 AM ET

Executives

Steven H. Pruett – President and CFO - Legacy Reserves L.P

Kolja Rockov – Executive VP and CFO - LINN Energy

Rich Dealy – Executive VP and CFO – Pioneer Southwest Energy Partners L.P.

Presentation

Moderator

Good morning. We’ll get started here in just a minute. Hope everybody got something useful out of the day yesterday and we’ve got another good slate of panel presentations this morning and we will be kicking off this morning with an another panel focus on the upstream MLPs. These three partnerships really are focused in the Permian and Granite Wash. We’ve got Legacy Reserves L.P with Steve Pruett, President and Chief Financial Officer; LINN Energy, Kolja Rockov, Executive Vice President and Chief Financial Officer; and Pioneer Southwest Energy Partners with Rich Dealy, Executive Vice President and Chief Financial Officer.

So with that we’ll kick it off with Steven, Legacy.

Steven H. Pruett – President and CFO - Legacy Reserves L.P

Thank you, TJ. I’m a little under the weather today with the cold, but I’ll do my best. Well it’s great to be in Dallas and to report to our owners. We had a nice third quarter. It seems like it was eons ago, but we reported just a couple of weeks ago and our minds are of course focused on the fourth quarter and next year. I’ll be making forward-looking statements so we encourage you to look at our 10-K for risk factors and examine all of our recent filings.

Legacy is a publicly traded upstream Master Limited Partnership. While we are an MLP with a general partner, we do not have incentive distribution rights. The insiders, the founders own about 22% of the outstanding. That number is down subsequent to our 3.4 million unit offering which closed last – actually closed on Monday, $28.85 a unit. Thank you those in the room that participated in that offering and made it a success. We are very happy with the retention, though we have had some selling pressure from a few institutions this past week and we are hoping to get beyond that and start trading above the issue price.

The public, which is primarily retail and retail hands on 77%. The general partners benign with less than a 0.5% ownership have just received its pro-rata distributions and nothing else. And we – on Monday, we also issued a closed and acquisition of Permian Basin assets for about $21.5 million cash and 278,000 units. So we now have 2% of the outstanding is held in the hands of sellers of assets to Legacy. It’s a great way to defer gains on assets that often have low basis. Today we are trading – opening at an 8% yield so we are on sale. If you didn’t get enough units in the offering we encourage you to pick up some more while it’s cheap.

Our assets have grown over time. We are diversified, widely diversified over almost 6,000 producing wells, four former reserves with our acquisition that closed on Monday, 63.4 million barrels equivalent. The vast majority of that’s pre-developed producing. That means the wells are producing and generating cash flow to support year distribution. We are a little over two-third oil and natural gas liquids, along with a very rich stream of natural gas that has recently been selling at about 50% premium to Henry, Hub thanks to the natural gas liquids content.

The core areas of course are the Permian on the South edge. We are headquartered in Mid-land Texas. The Texas Panhandle is the center of our Mid-Con operations along with the miscible nitrogen project in Oklahoma, and we have a business unit in Cody, Wyoming. We’ve been growing through acquisitions in Wyoming thanks to that presence on the ground, 13,800 barrels of oil equivalent per day, 70% of that’s operated. That means we control our destiny on the timing and execution of our development capital program and improvement programs for existing well bores.

Development inventory is depicted on page five. We’ve been actively drilling the Wolfberry Trend. We’ve had tremendous results there exceeding our expectations. We are now moving into drilling our 40 acre in fill locations. They are still averaging – the slide says $1.85 million, that’s what we’ve averaged to date but we’ve put in a lot of infrastructure. As we infill drill we expect that cost to be $1.7 million, benefiting from the existing infrastructure.

The Spraberry Trend is our resource play in the Permian Basin spanning eight counties. Of course you will hear more about that from Rich Dealy. We have a lot of infill drilling to do there, it’s shooting fish in a barrel. The Farmer field happens to have some exposure to the horizontal Wolfcamp and Wolf Fork play that some of the larger independents like EOG are active in, and we are watching their development activities as they approach our acreage. They’ve all requested farm-outs for holding onto our acreage and as they de-risk it we’ll be drilling in that area. And then the opportunities on the lower left hand side are conventional water flood infill opportunities, again low risk and along with the upper left hand side the Empire Yeso area, that’s a Yeso play. It’s a very – essentially the Spraberry Wolfberry play of New Mexico and we’ll be drilling that this year in partnership.

Read the rest of this transcript for free on seekingalpha.com